Homeowners warm to heat pumps

I was not too surprised to read Kenza Bryan and Steven Bernard’s piece from Friday about scanty ice coverage over North America’s Great Lakes this winter. The US experienced its warmest December on record last year. Up in Canada, where I attempted to ski outside Montreal after Christmas, the slopes were slushy and crippled by rain.

This weekend, New Yorkers tried to get excited for a storm that delivered a few flurries but mostly rain. Central Park failed to accumulate an inch of snow, extending a snowless streak that is nearly two years long. It is simply too warm.

But, speaking of winter weather, I have a piece today about the market for energy efficiency. The sector might not be as flashy as electric vehicles, but technology for heating and cooling can go a long way towards saving money and cutting carbon emissions. Thanks for reading.

Energy Efficiency

Why the unsung heat pump needs a rebrand

On a chilly morning in New York last Friday, the weather was quite appropriate for a conversation about insulation and heat pumps. I interviewed Lauren Salz, chief executive of Sealed, an energy efficiency business that works with homeowners and contractors to fund insulation and heat pumps.

Going into 2024, Sealed is highly focused on President Joe Biden’s green subsidies law known as the Inflation Reduction Act. The IRA allocated $9bn for residential energy efficiency and electrification. These funds help homeowners buy and install appliances as well as windows, doors and insulation materials.

In a sign of how bureaucratic the implementation of the IRA has become, not one dollar from the $9bn has been paid out yet. While the subsidies come from the federal government, they are doled out by the states. Only New Mexico has started the process to tap these IRA funds, Salz told me. 

As these incentives come online, contractors play a crucial role. Sealed offers a “buy now, pay later” programme that funds energy-efficient products and then takes the IRA incentives when they become available, Salz said. Sealed handles the complicated paperwork needed to secure the IRA subsidies. These cost savings pass through to homeowners, she said.

As an energy efficiency wonk, Salz proselytises for the humble heat pump. According to the US Department of Energy, they work like a refrigerator, making cool places cooler and the warm places warmer. Heat pumps have enjoyed strong sales, jumping 40 per cent in Europe in 2022, according to the International Energy Agency. In the US, heat pumps outsold gas-powered furnaces for the first time in 2022.

And it is not just the US that is giving heat pumps more love. In the UK, new heat pump applications more than doubled in October, according to the most recent figures from the UK Boiler Upgrade Scheme. The Sunak government in October increased grants for heat pumps by 50 per cent.

Sweden-based NIBE Energy Systems saw its shares jump 15 per cent in December after Germany said federal budget freezes would not affect heat pump subsidies, according to a report last month from Morgan Stanley. NIBE generates about 40 per cent of its revenues from heat pump sales. Heat pumps can also be used to boost water heater efficiency. 

But heat pumps are still misunderstood, according to Salz, who says most people still don’t know that these devices can cool homes as well as warm them. This year, she predicted, “there is going to be a semi-serious debate about rebranding” the heat pump.

But this is not the only energy-efficiency tool that needs to be cast in a new light. Sealed also wants people to tap IRA subsidies by switching out their gas stoves for electric ones. Induction cooking is much more efficient than gas cooking, Sealed argues. It wastes as little as 10 per cent of the energy used, compared with about 60 per cent for a gas stove. Gas stoves also have troubling health consequences that are increasingly coming to light.

Despite these incentives to switch to electric, gas stoves flared into yet another culture war in 2023. “God. Guns. Gas stoves,” Ohio lawmaker Jim Jordan wrote on social media platform X last January.

“We need a major celebrity to get behind induction stove tops,” like a celebrity chef, Salz said. But people are loyal to gas cooking and don’t appreciate the attributes of electric stoves, she said.

There is also strong corporate lobbying from US utility businesses that are eager to keep gas stoves alight.

Sealed isn’t the only business waiting anxiously for the IRA energy-efficiency subsidies to kick into gear.

UK-based Octopus Energy announced in December it has raised $800mn, including $326mn from the Canada Pension Plan Investment Board. These funds will help accelerate the rollout of heat pumps, Octopus chief executive Greg Jackson said.

Also last year, US-based Carrier Global spent €12bn to acquire the climate solutions division of Viessmann, a German heating equipment group. The deal positions Carrier to profit from the energy transition in Europe, where governments are subsidising heat pumps, the company said. Viessmann’s European heat pump segment is expected to triple its sales to $15 billion by 2027, according to Carrier.

Trane Technologies as well as Japanese companies Daikin and Mitsubishi are also big heat pumpmakers.

For Salz, there has never been strong government support for the energy efficiency sector. The energy efficiency subsidies in the IRA are a tiny fraction of the law’s $370bn total. She said insulation and heat pumps offer “way better bang for your buck” than buying an electric vehicle. People love getting new cars, she said, but “having an EV doesn’t change their life.” Insulation and heat pumps can cut a home’s energy usage in half and sometimes more, she said.

The intersection of cost savings and cutting carbon emissions is incredibly valuable for investors — not just those focused on sustainability. Regardless of the environmental benefits insulation and heat pumps can provide, the cost savings to homeowners should be appealing in itself.

Smart read

Check out Will Schmitt’s story about how a Texas pension fund seems to have skirted the state’s tough ESG investing prohibitions.